ARCHIVE OF THE OFFICIAL SITE OF THE 2008-2012 PRIME MINISTER OF THE RUSSIAN FEDERATION VLADIMIR PUTIN

Good afternoon, ladies and gentlemen, Mr Gryzlov,

The Government of the Russian Federation would like to present a report on its performance in 2009, as required by the Constitution.

I will also answer your questions. I hope that we will have a useful and constructive dialogue, as we had last year.

I am sure you remember how 2009 started. Those were the most critical months of the recession; almost all economic indexes were falling. The unemployment was growing and loan interest rates were increasing, sometimes becoming totally prohibitive.

The whole world, including Russia, was facing grave problems. Global economy shrank for the first time since World War II. Nothing of that kind had happened since WWII.

Many experienced great concerns and uncertainty. Some drew parallels between the default of 1998 and even the tragic and terrible events of 1992.

Looking back, one can say that the situation was truly difficult, and we haven't dealt with all troubles yet. Nevertheless, the gloomy forecasts didn't prove correct, and that cannot be explained purely by good luck.

We can see that even developed economies are experiencing post-recession hardships, facing social disturbances and have to turn to international organisations for help. One could hardly imagine it a couple years ago, but these countries have no other way out.

Surprisingly, when our European partners discussed whether European countries should ask the IMF for help, many responsible and prudent politicians, the proponents of the Atlantic, North-Atlantic approach, said that it is inadmissible for European countries. It's admissible for us, but inadmissible for them. We have excellent relations with the IMF. This organisation has been very helpful, but the reluctance of European politicians to turn to it speaks for itself.

I am not saying this to gloat; I want to emphasise how important it is to us, the government and the State Duma, to pursue a prudent financial and economic policy, not to go with a hat in hand, losing economic and, consequently, political sovereignty.

Of course we also had a backlog of problems, and still do. In 2009, the Russian GDP fell by a record 7.9%, industrial production fell by 10.8%, the export price of oil, gas and ferrous metals plummeted by 40%, 30% and 43%, respectively. And these are our main exports.

However, if past hardships threw this country far behind, this time Russia proved prepared for them much better than before.

We faced the crisis after a 10-year period of economic growth. Labour productivity increased by 50%, and the number of people living below the poverty line almost halved.

The very profile of the Russian economy changed greatly, or at least significantly, if not greatly. The financial sector, industries and social services became far more effective and stable. Russia responded to the recession as a strong state which does not wait until things settle on their own but acts decisively and proactively.

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In 2009 the government implemented an unprecedented anti-crisis programme.

We decided not to cut the government spending on every budget item. We can often hear that there was a radical reduction, but we didn't make wholesale reductions of spending on every budget item. We chose a different solution, and I believe we did the right thing.

As a matter of fact, we kept the budget at the planned level, redistributing budget spending to benefit the sectors that can ensure social and economic stability in the country.

Moreover, budget spending grew significantly in 2009, if compared with 2008, the pre-crisis year. I was surprised to see these numbers myself yesterday. Budget spending grew 27.3%, whereas revenues dropped 20.9%. We used the reserves we accumulated to offset the deficit.

I repeat, we revamped the budget to address the most acute problems.

Half of it went to payments of salaries, pensions and social benefits, as well as education, healthcare and housing, all of which determine the quality of life. The amount I am referring to totals five trillion roubles, which is one trillion roubles more than in 2008.

A total of 1.65 trillion roubles was allocated to support the national economy, with hundreds of billions of roubles allotted to high-tech industries. The year before our allocations to these sectors were three times smaller.

A total of 1.1 trillion roubles was allocated to the Army and the Navy to ensure their combat capacity. This amount exceeds the 2008 allocations by 150 billion roubles.

Over three trillion roubles were budgeted for the anti-crisis programme. That figure includes the resources of the federal budget, the National Welfare Fund, the Central Bank and government guarantees. At the current exchange rate, that amounts to over $100 billion.

One can say with confidence that most measures proved very effective. We prevented a collapse of industries and the financial system, and most importantly, a fall in the net incomes of the people. I will talk about this later.

There was a decline in salaries, on average.Wages and salaries were either frozen or cut in some sectors. I would like to repeat that the average income increased by 2.3% in 2009. This primarily reflects public-sector employees and retirees, rather than business oligarchs whose fortunes have dwindled considerably over the same period.

We have managed to preserve primary social programmes, to implement selective social-support measures and to help those who had lost their jobs or whose incomes had plunged.

We took preventive action to avert critical unemployment growth, to enable people to keep their jobs, to learn new professions or to open their own businesses. We also tried to help enterprises retain their most skilled personnel.

Employment-facilitation programmes covered 2.8 million people.

In February 2009, unemployment hit an all-time high of 7.1 million during the crisis, declining to 6.4 million in March 2010. Although this is still a lot, the overall trend seems positive.

This means that, regardless of seasonal fluctuation, we managed to launch processes that restored the labour market and promoted the creation of jobs.

The deputies have raised the issue of the government's attitude towards job cuts and redundancies. I will reply to some of your questions during the speech. Then, if you don't mind, I will go to my area and will answer them online.

Naturally, we oppose market-fluctuation layoffs, that is, when people lose jobs due to temporarily reduced demand. Employment programmes were launched in order to prevent this scenario.

Incidentally, corporate owners and managers do care about human resources because they realise the difficulty in finding new skilled workers.

However, redundancies may also be linked with production modernisation programmes and the need to boost labour productivity. In that case, it would be pointless to struggle for inefficiency. It would be much better to organise advanced-training and retraining courses for people and to help them find new and worthwhile jobs.

In 2010, employment programmes will receive 40.5 billion roubles. These programmes will stipulate new measures, including on the job training for school, technical-school, college and university graduates, employment opportunities for disabled persons and defusing tensions in single-company towns. Special employment measures will also be initiated in the North Caucasian Federal District. I don't need to repeat how important this is.

Naturally, we will continue to apply selective anti-crisis measures, as long as there is a need for them. For example, we will support the housing market and the automotive industry.

But I would like to be clear that the special anti-crisis measures, as well as all our steps and all our budgetary resources, are currently working for the fastest possible economic recovery and a resurgent labour market.

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Esteemed colleagues,

In 2009, 1,762,000 children, or 50,000 more than in 2008, were born in Russia, while mortality rates declined 3%. As I have said, everything was the other way around in the crisis-ridden 1998 period. At that time, mortality rates soared by 8%, while birth rates declined 5.3%.

Many of those sitting in this room probably remember that, when the demographic programme was proposed, we had to overcome skeptical attitudes and disbelief that the situation could change for the better. But the result is here for us to see. This result is even better than those in many other countries trying to implement demographic programmes.

The Russian population has stabilised for the first time since the mid-1990s, and average life expectancy has reached 69 years.

I would like to remind you that the average life expectancy was 64.5 years in 1995. Although this change is not very impressive, it is nonetheless quite noticeable.

The first stage of our demographic policy has been completed. During the second stage, scheduled to last until 2015, we have to promote sustained national population growth and to increase average life expectancy to 71 years.

The national population census will be conducted in October 2010. Its results will be used in drafting subsequent demographic and social initiatives.

I am adamant that, no matter how profound the crisis may be, it cannot justify violating promises given to the people.

Consequently, we decided not to revise the parameters of indexing children's allowances which were increased 13% on January 1, 2009 and by another 10% on January 1, 2010.

Maternity capital has been indexed and now totals 343,000 roubles. People are able to spend this money ahead of schedule.

About 118,000 families used their maternity capital to repay mortgages in full or in part. Such payments totaled 32.7 billion roubles.

Another 1.5 million families took advantage of another support measure which was not initially stipulated but which was introduced by us because of the crisis.

They received cash for their current needs under the Maternity Capital programme, 12,000 roubles each. The money has indeed helped these people in a difficult situation. I think it expedient to continue paying these benefits at least for another year.

Also, we receive a lot of proposals on expanding the options for using the Maternity Capital benefit. Some of them are quite reasonable.

You must remember how this programme originated and you must know that I personally helped write it. I even invented the name, Maternity Capital. I'll tell you what the thinking was when we selected the three options - housing, retirement savings, and the child's education or medical services. We tried to protect the mothers' interests this way, to prevent wasting this money. These amounts are duly included in the budget; so it is not a question of trying to keep them - we just tried to prevent ineffective spending.

One proposal is to spend the Maternity Capital benefit to buy a vehicle. But who would end up driving this car?

Yet, some of the options of spending the benefit can be expanded. For example, the housing option: we in fact planned that the programme would help resolve any housing issues a family has. Therefore, it is possible to include individual home construction, also cases where people build their homes themselves, without hiring workers, and buy construction materials.

The government will soon draft the required amendments to the Maternity Capital law and submit them to parliament; I would ask you to support these changes.

Speaking here a year ago, I pledged that, despite the difficulties posed by the recession, we would review the right of people who earned their pensions in Soviet times to retirement benefits. And we did this, regardless of the hardships.

Russia is probably the only country that ventured a major pension reform at a difficult time like this, raising pensions substantially. In fact, the word probably is not accurate - it is the only one for certain.

Retirement benefits were indexed four times in 2009 - in March, April, August and December; the average annual effective growth was 10.7% (let me stress the effective part here, because I mean adjusted for inflation). The end of this year will see a 45% rise, starting in April: the average size of the monthly labour pension is currently 8,100 roubles, while total benefits payable to World War II veterans have grown to 23,000 roubles.

In addition, nearly 5 million retired Russians living in regions where the cost of living is high now receive additional social benefits. As a result, we have succeeded in raising senior citizens' incomes above the poverty line. Let me emphasise that I mean the official poverty threshold. This does not imply that they are now prospering exactly; we still need to keep their welfare in mind.

Let me add that the rise in the older generation's living standards is our shared success. It is a tangible result of a fruitful cooperation between the government and parliament, including the State Duma members. I highly appreciate the work you've done.

Indeed we are not going to wave aside plans to raise military servicemen's pay, the salaries of teacher and doctors and other professionals working for government-financed institutions, or retired servicemen's pensions.

Let me remind you that the 2009 plans to raise military pay (including retired officers and those in active service) were not revised. They were raised by 8.5% in August 2009. Earlier, on December 1, 2008, payroll funds for government-financed institutions were raised by as much as 30%. We have promised to consider another increase in their salaries, in military pay and in college scholarships; we will do so next autumn after reviewing the federal budget.

I mentioned once that it would be wrong to beg; we should pursue a wise and responsible policy. Many governments are cutting social benefits and suspending the indexation of pensions and salaries. This is something we are trying to avoid; however, we should also be honest with the public and be realistic about our possibilities conditioned by the economy. We will certainly continue doing so as best we can.

I have already mentioned that our anti-crisis policies have been effective. On the other hand, some of them probably could have been implemented faster and could have been better managed.

For example, we had to adjust the procedure for providing state guarantees as we were going along, as it proved inconvenient. Eventually, these guarantees did help companies borrow 374 billion roubles, which is a substantial amount. These companies made a commitment to keep their financing transparent, to preserve jobs for people with disabilities and other socially unprotected groups and to cut senior executives' remuneration.

We tried to support the auto industry which was hardest hit in Russia and probably in the world. Overall, the government will purchase an additional 100 billion roubles worth of domestic vehicles in 2009 and 2010, including cars, trucks, buses and other vehicles for federal and municipal services.

Moreover, when I talked to company executives, many said flatly that their companies would have long gone out of business without this programme. Production would have been halted and people fired.

We have subsidised bank interest on car loans and extended a grant to AvtoVAZ, the country's largest automaker.

The old car utilisation (trade-in) programme should have probably started long ago, but we wanted to see how it worked in other countries first.

I recently visited a dealership in Novosibirsk that is working under the car utilisation programme. The plan certainly needs some adjusting, but it is working. It was initiated six weeks ago, but we already have good results.

Certificates for the purchase of new cars have been issued to over 50,000 people. Suspended production at car plants has become one of the most vivid examples of the crisis in many countries, as I have said before.

Indicatively, Russian automakers are increasing output after 18 months of falling production. The auto industry is regaining strength alongside many other economic sectors. By the way, AvtoVAZ has commissioned additional production lines to meet the demand created by the old car utilisation programme.

Since the beginning of the crisis we have also provided targeted support to the defence sector and other high-tech enterprises. Last year's grim expectations by some politicians who forecast the collapse of the national defence sector, have not materialised.

I know that there are many serious problems in the sector; we have been addressing them one by one. You have probably noticed that I hold special meetings in individual sectors at which we discuss their problems in depth. Still, the production of military equipment grew nearly 13% in 2009 despite a general decrease. Production in shipbuilding increased 31.6%, in the missile and space segment 16.5% and in aviation 9%.

The trials of the fifth-generation fighter is proceeding well, and I'd like to use this occasion to once again thank everyone who created that aircraft and who are now making it fly.

We will not limit our efforts to the above. After completing work on the fighter plane, we will start a project to create a prospective long-range plane, a new strategic bomber that will also carry missiles. We have conducted an inventory in the defence sector and will now draft long-term rearmament programmes for all basic combat equipment, including command and reconnaissance systems, armoured and naval equipment and precision weapons. As a result, the percent of modern weapons in our armed forces should grow to 70% or 80%, and these weapons should be of a new generation.

Deputies have asked us about the possibility of restructuring the defence enterprises' debts. This can be done.
In December 2009, the government issued a relevant resolution for 2010. It concerns the debt that accumulated by January 1, 2009 - it was the Communist Party that raised these questions.

Colleagues, I'm sure you remember that a year ago sharp questions were asked here about problems in agriculture. In 2009, assistance to agriculture from the budgets of all levels amounted to approximately 300 billion roubles. Another 776 billion roubles were provided to farms in the forms of loans, including 453 billion roubles as easy term loans at interest rates subsidised by the government.

Thanks to the hard work of industry personnel and timely assistance from the government, no decline has been registered in agriculture. On the contrary, production grew 1.2%, which is a positive fact even though it is not a large figure. And grain exports went up 60%.

By the way, this is one more proof of the importance of investment in infrastructure, notably roads and seaports.
Of course, the crisis forced us to adjust part of our perspective plans. But we tried to carry on or complete projects that were under way. Under the federal targeted programme of Modernisation of the Transport System, we invested 632 billion roubles in infrastructure, including 285.6 billion from the federal budget.

Last year we commissioned 3,000 km of federal and regional highways, 700 km more than in 2008. This year we will complete the construction of the Chita-Khabarovsk route, and will be able to open it to through traffic from Russia's western borders to Vladivostok on the Pacific Coast. I am confident that this new highway will greatly benefit the country, and will remain in use for a long time just like the Trans-Siberian Railway.

The Trans-Siberian Railway was built in the tsarist period, in 1903-1904, and the region had no other comparable route. We are now building the first highway that will link the country's European part with the Far East. This is a major event.

We have the Baikal-Amur Mainline (BAM), but is it being used effectively? How well was it built? The Trans-Siberian Railway is working to capacity; why doesn't the BAM? There are economic reasons for this.

But then, the Trans-Siberian Railway and the BAM were built because Russia expected to be at war soon after their completion, or at the least because of a military threat. But we are not building this highway for either reason. This is the first time we are implementing such a major project in a planned manner.

Traffic safety has greatly improved. Like in 2008, the traffic fatality rate fell, this time by 14.8%. This is a good result. Thanks to measures taken to improve the quality of medical assistance to traffic victims, to better organise traffic and to develop infrastructure, the number of traffic accident victims is lower now than 20 and even 30 years ago.

I will cite a figure to prove my point: 27,100 people died in traffic accidents in 1980 and 20,400 in 2009, in spite of the huge increase in the number of cars on our roads since 1980.

But this is not a reason for feeling content, as the number of Russians who die in traffic accidents is still dramatically high. I think that we should formulate a new goal and work towards it; we must ensure the same traffic safety as our partners in Europe have.

Last year we completed the modernisation of eight airports, in Petrozavodsk, Veliky Novgorod, Rostov-on-Don, Kirov, Nizhnevartovsk, Novosibirsk, Tomsk and Khatanga. We have implemented a strategic high-speed rail project between St Petersburg and Moscow, and high-speed trains will soon run between St Petersburg and Helsinki. Next we must create high-speed rail transportation between Moscow and Nizhny Novgorod, and such routes must also be built in Siberia.

Preparations for the Sochi 2014 Olympic Games and the 2012 APEC summit in Vladivostok are proceeding without a hitch. As many as 27,000 people are building new facilities there. Last year, about 1,000 sports facilities were commissioned with allocations from the federal, regional and local budgets and business. The number of people regularly engaged in sports reached 24 million, 1.5 million more than in 2008.

In other words, new stadiums, swimming pools and skating rinks will not remain unused; on the contrary, we will need to build more modern sports facilities if we want to create conditions to encourage people to take up sports.

We will do this, and we will nudge the regions and municipalities into doing the same.

Ladies and gentlemen,

The accident at the Sayano-Shushenskaya Hyrdoelectric Power Station was a difficult, dramatic challenge for our country. And of course, the biggest loss was people. As I have said on many occasions, we'll certainly restore the plant's facilities, but those who died will never come back. We'll continue to provide assistance to the families who lost loved ones in the accident.

Today, eight months after the disaster, two hydroelectric generating units have been launched at the power station, and another two units will be launched by the end of this year. The power station is expected be fully operational by 2013.

The power generating facilities put into operation throughout the country in 2009 have a total capacity of 1.7 GW, which is practically at the same level as 2008. And we plan to put into operation about 20 GW of generating capacity by 2012.

The Russian oil and gas industry performed well in 2009. Oil production increased by 1.2%, to reach 494 million metric tons. This growth was made possible thanks to our new oil fields, such as Vankor, Talakan and Verkhnyaya Chona, which are located in Siberia and the Far East. I am confident that these places will soon become as well known as Surgut and Samotlor.

In 2009, the construction of the first stage of the Eastern Siberia - Pacific Ocean oil pipeline system was finished. And as I'm sure you know, construction on the Nord Stream gas pipeline along the Baltic seabed was started just a couple of days ago. Work is well underway in the Baltic Sea, in close proximity to the Swedish coast.

There has been much progress on other projects, including the South Stream and the second leg of the Baltic Pipeline System.

It's important that the Russian energy industry take advantage of the benefits of modern technology. The first LNG plant was launched in Sakhalin, which opens promising markets for us.

We saw the first signs of the global downturn in 2008 in the banking sector and stock markets, and we launched our anti-recessionary programme in the financial sector first. As we all know, our measures were disputed and doubted by many.

Once again I'd like to reiterate, distinguished deputies, that we did not provide aid to particular businesspeople, but rather to the critical sectors of the Russian economy and the key companies that employ tens of thousands of people. In addition, we needed to safeguard depositors and prevent the collapse of industries.

Let's reassess how much the government used, and on what terms and to what effect. First of all, nothing was given away for free. The funds were distributed as loans, and loans must be paid back. The government supplemented the deposits of commercial banks by 687 billion roubles, using available funds from the federal budget. These funds have already been returned to the state. This allowed the government to earn an additional 19.2 billion roubles in revenues.

And so have banks' debts due to unsecured loans been reduced significantly? Banks owed only 61.3 billion roubles in debt as of April 15, 2010, whereas the amount of credit the Central Bank had distributed reached 1,924 billion roubles in unsecured loans at the peak of the crisis. That number has now fallen to only 61.3 billion roubles now. Everything is being returned.

The government's measures allowed us to avoid a collapse of the banking system. Regular people were not affected by the instability in the financial markets.

Banks are once again increasing the amount of credit in the economy; the volume of loans is expected to increase by 5% to 10% in 2010. Almost all banks have adequate liquidity.

Interest rates are continually falling. In January 2009 they exceeded 20%, and even 25%. By February 2010 interest rates had fallen to some 12.7%. I understand that the interest rates for the most reliable borrowers can be lower than this, whereas it can be higher for other companies, sometimes reaching 13% to 14%. But after all, that's not 25%.

The economic situation has allowed the Central Bank to reduce its refinancing rate, as we promised. It has reached a historic low, 8.25%, which is unprecedented in Russia's modern history.

The same goes for the support of the Russian stock market. Vnesheconombank has already returned 175 billion roubles to the government. These funds were used to purchase depreciated shares of Russian companies. The bank returned this amount to the state ahead of schedule, and interest cost only 13.3 billion roubles, therefore allowing the bank to save 60.2 billion roubles. These funds can be used in the mortgage market. Essentially, we managed to earn some money during the recession.

Incidentally, the Russian stock market is one of the global leaders in terms of how quickly it has recovered. It fell faster than other markets, but has also recovered more quickly.

In 2009 Russian stock indexes more than doubled. I'd also like to remind you that at the peak of the recession there was a real danger of losing Russian strategic assets that Russian companies had used as collateral, and which could have been sold on the cheap if large Russian companies had failed to pay back loans they borrowed from Western banks and lending agencies. Together we were able to avoid this negative development.

The State Duma passed the federal law No. 173-FZ, dated October 13, 2008, which allotted $50 billion to the Bank for Development to refinance the debts of Russian companies. The bank only refinanced loans worth $11.6 billion, which seemed to be sufficient to take the edge off the problem and send a clear message that the government was capable of meeting such challenges. The process of restructuring the debt of Western lending agencies has gone quite differently. A total of $3.9 billion out of the mentioned $11.6 billion have been returned, while the borrowers are paying the required interest to the government on time.

Russian investments in the mortgage bonds of the U.S. companies Fannie Mae and Freddie Mac have yielded a profit as well. This caused a lot of commotion at the time, and perhaps with some justification. There was a reason to feel anxious about the investment. But in hindsight, it's clear that there was no need to worry, as our U.S. partners fulfilled their obligations.

I would like to draw attention to the skilful actions taken by our financial authorities. Funds from our foreign reserves and the government reserve fund have been and continue to be invested prudently. I would like to emphasise that we have not sustained any losses. Rather, our earnings have been considerable.

Total earnings from investing funds from the reserve fund and National Welfare Fund in 2008 and 2009 totalled almost 397 billion roubles, or $20 billion, which is 3.9% of our domestic currency reserves.

I should add that many countries incurred losses from their investments, including Singapore, Australia and several other economically advanced countries.

Now, I would like to mention the major goals for the next two years, namely: putting the country's economy back on track toward sustainable growth, ensuring macroeconomic stability, improving the efficiency of budget spending, developing new industrial capacity, supporting innovation, and advancing social sectors.

We intend to boost Russia's efficiency and competitiveness, improve the investment climate and provide greater freedom for businesses, as well as to make use of public-private partnerships in the sphere of social services and infrastructure.

Future progress will depend primarily on responsible macroeconomic policy and a balanced budget. We cannot afford to keep running six percent budget deficits. We will become mired in debt, spending more and more to service our debt instead of pursuing economic development. By 2012, we must bring the budget deficit down to 3 percent of GDP, with the ultimate goals being a balanced budget and then surpluses that we can add to our reserves.

To achieve this, we will, of course, look for additional revenue sources. This is always the first step. However, raising taxes and taking money out of our economy now, in the early stages of an economic recovery, is not the best option.

I believe the best option is to make federal spending more efficient.

As you know, over the past few years we have increased spending considerably. This increase was justified. These additional resources have helped resolve urgent issues in education, healthcare, housing and utilities. However, continuing to increase federal spending would be pointless. It is pointless to keep pumping money into an inefficient system. This only results in more waste.

Budget resources should be used to encourage reforms. Also, we should strive to achieve greater results for the same, or even less, money.

Soon the government will approve the programme to increase the efficiency of federal spending. Our task is to reform the budget and to overhaul state finances and public administration between 2011 and the end of 2012. These reforms will not merely shuffle spending around, transferring money from one budget item to another. Rather, our task is to change the way we spend. That is why we plan to fundamentally change the way we draft and implement budgets.

Currently, there is an awful lot of duplication and parallel spending for the same goals. For instance, the Ministry of Education has no say on education spending in other ministries and departments, and the same is true for the Ministry of Health and healthcare spending. Education and healthcare spending is divided among a lot of different ministries, while the key ministry has no influence over how these funds are distributed and used.

Only 10% of budget spending is directed toward targeted programmes, and often money is spent in a way that does not advance our reform goals. In fact, sometimes spending runs counter to these goals. As a result of our reforms, a large part of government revenue will go toward state programs in accordance with the government's key functions and the priorities set by the Guidelines for Government Activities up to 2012.

The resources allotted to various ministries and departments, as well as non-budget resources, will be concentrated in the state programs so that we can track how money is being spent and direct resources toward priorities. These programmes will be modelled on the state program for agricultural development. We will also institute programmes for the comprehensive development of education, healthcare, science, housing construction and others.

For each programme, we will establish efficiency indicators and hold the relevant ministries and departments accountable for the implementation of these programmes.

Remember, a considerable portion of federal spending goes toward supporting Russia's regions. A total of 1,178 billion roubles will go toward the regions this year. We need a more equitable model to make our budgets complement one another. Federal support should encourage the best regions and help all territories develop and use resources efficiently. We will develop this model soon and submit it for your consideration.

Esteemed colleagues, there are people with differing political views here in the State Duma hall. We can discuss many issues and propose various solutions to our problems.

But I have seen again and again how we are united by our common understanding that the future of Russia depends on the people of Russia. Our priority must always be to invest in improvement in the quality of life, education and healthcare.

We managed to implement our programmes in key social sectors despite the yearlong crisis.

I would like to focus on education and science in this context.

The law on Russia's leading classical universities - Moscow and St Petersburg state universities - has been enacted. Fourteen other universities have been granted the status of "national research universities". We will spend from 1.5 to 1.8 billion roubles on their development programmes over the next five years. In addition to the Southern and Siberian federal universities, the government has taken the decision to set up another five such educational centres in Arkhangelsk, Yekaterinburg, Kazan, Yakutsk and Vladivostok. An additional 10 billion roubles have been allocated to the national research centre, the Kurchatov Institute.

Several weeks ago we adopted a decision to support science and research at universities. Over the next three years, an additional 39 billion roubles will be invested to finance research programmes of leading scientists, developing research infrastructure, and subsidizing research and development carried out at universities at the requests of businesses operating in the real economy.

I will not go into the mechanism in detail, as I have already spoken about this. The money will go through the enterprise, which will co-finance 50% of the research expenses, place innovation orders and then introduce the innovation in the country's economy.

We must finish up our work to create a strong innovative core in our national higher education institutions. I am calling on the universities making up this core to make a significant progress in basic fundamental research as well as the commercial application of new technologies. They must bridge the gap between education and the needs of the real economy.

This year has been declared the Year of the Teacher in Russia. This is another step in our effort to increase the public prestige of this profession. In some regions where new labour remuneration systems have been introduced, teachers' salaries have approached and even exceeded the average salary in the regions' economy, which is amazing but true. For instance, this has been achieved in the Chuvash Republic, the Krasnodar Territory, the Volgograd, Belgorod, Ivanovo, Kaliningrad, Kaluga, and Saratov regions as well as a number of other regions across the Russian Federation.

We must continue revitalising our education system. The government has approved the presidential initiative, "Our New School", which calls for improving a tuition system for gifted children, measures to make students healthier, upgrading teachers' qualification, and increasing schools' independence. This year we also must finish formulating federal education standards for the next generation.

There continues to be a lot of problems in our healthcare system, although we have managed to make some progress in recent years. For example, 1 million 600 thousand women have taken advantage of the birth certificate programme. Owing to more effective medical treatment, we managed to reduce the mortality rate caused by cardio-vascular diseases by 4.6%, having saved 55,000 lives. We launched two new advanced medical technology centres in Astrakhan and Cheboksary, as well as perinatal centres in Irkutsk and Kaliningrad, which has provided high-tech medical treatment to 254,000 people.

I'd like to draw your attention to the fact that 60% of the demand for high-tech medical treatment in Russia has been met, while only one in every ten Russian citizens had access to these treatments just a few years ago. We plan to increase this figure to 80% and set up another 11 high-tech medical centres by 2012. Perhaps some of your have had the chance to visit these centres.

To be honest, I'm satisfied with our ability to bring together such a strong medical staff. Some people asked where we would find people apart from Moscow, St Petersburg and a couple of other cities. I was told that we shouldn't spread everything out over the country, but everything works and works well. All members of medical teams have got an excellent education, both in our country and abroad. They got some hands-on experience here and there. They leave Moscow and St Petersburg for small centres, get housing there, work and move their families there. So the high-tech medical treatment network is being set up throughout the country.

Currently, some people suggest that we wait a bit before increasing premiums to the Mandatory Medical Insurance Fund from 3.1% to 5.1%, as it will be a heavy burden on the economy, which has only just started to recover from the crisis.

This is a serious argument, and we gave businesses a break in 2010. In my opinion, there is no sense in rejecting a decision that has already been taken.

Our goal is to improve people's quality of life, their health. This is what we are actually working towards and the reason why we are so focused on economic development.

Raising insurance premiums by 2% will bring an additional 460 billion roubles into the mandatory medical insurance system over the next two years. At the same time, it would be unwise to invest these funds in a system that did not work effectively. This would only spread the resources too thin, as I have said before.

And now I would like to move on to the most important part of today's report.

Yesterday I met with medical workers at the Best Doctor of the Year award ceremony. I told them that we would soon unveil proposals for improving the healthcare system. This is what I would like to do now.

To resolve all the problems in the healthcare system, we propose creating a special reserve fund that would be a part of the Federal Mandatory Medical Insurance Fund and would increase insurance premiums by just 2%. The money would begin flowing into the Federal Mandatory Medical Insurance Fund on January 1, 2011.

In order to do this, we would amend legislation on mandatory medical insurance so that the reserve fund would remain separate for at least two years. So, it would be a special reserve fund under the auspices of Federal Mandatory Medical Insurance Fund.

These reserves would be disbursed through regional programmes for the modernisation of the healthcare system, with due account for the particular characteristics of various territories and in accordance with agreements between Russian regions, the Ministry of Healthcare and Social Development and the Federal Mandatory Medical Insurance Fund. In other words, we would consolidate resources just as we did through the national priority project.

How could we spend these considerable resources?

First, today more than 30% of all medical establishments are dangerously dilapidated or badly in need of repairs, irrespective of everything that has been done through the national priority project.

Many outpatient clinics and hospitals lack the equipment to provide modern health care. Therefore, we would allocate approximately 300 billion roubles within two years to upgrade the country's healthcare system.

However, these funds should primarily be spent in crucial areas, such as improving medical treatment for the diseases that are the leading causes for mortality.

Second, we would invest as much as 24 billion roubles to introduce modern information systems in healthcare. This would allow us to use resources more efficiently and improve people's access to medical services.

Third, another 136 billion roubles would be allocated to address several issues that, in my opinion, are very important. One of these issues is improving the quality of medical services, which would entail expenditures to increase salaries for medical personnel and improve medicines, meals for patients, expendable materials and diagnostic equipment. In addition, I suggest that we consider setting up an additional fund within the system. It could tentatively be called Health Fund, and it would be designed for non-working pensioners.

We can still discuss this proposal, and we will certainly seek your advice. But what could it entail? The government would distribute 1,000 roubles each year to the accounts of senior citizens, who would be able to use it as co-payment for their health insurance. And if a person did not have to consult a doctor during that yearlong period, the money would accumulate in his or her pension account.

Do you see what I'm saying? A person has 1,000 roubles and can use them for medical services, which would go to the co-pay. But if that person does not consult a doctor, if there is no need, the money would be transferred to his or her pension account.

I'd like to emphasise again that the funds designated for these three projects would be allocated only to those constituent entities that adopt healthcare modernisation programmes. This is an essential point. It will be just the same as it is with the Housing and Utilities Fund. We will repair medical establishments, provide necessary equipment, create modern information systems for healthcare and take steps to introduce insurance systems for the payment for medical services.

First of all, this concerns the transition to full-scale, single-payer financing for medical care through a system of mandatory health insurance. We must clearly state how much the government guarantees for the provision of free medical assistance using common standards and approaches. And lastly, we must cut administrative expenses in healthcare.

After the two-year period is up, that is, in 2013, additional allocations to the Mandatory Medical Insurance Fund would mostly be used to increasing current healthcare funding. At the same time, we must do our best to preserve the investment reserves stipulated at all levels of the budget, so that the allocation of additional funds will not encourage the constituent entities to withdraw money from these reserves.

This should lead to a serious renovation of the country's network of medical establishments. Modern diagnostic, preventive care, medical treatment and rehabilitation methods will be introduces in all of these medical establishments.

This would enable us to provide medical assistance to the people in strict compliance with government standards.

***

As I have already mentioned, last year we said we would implement major pension projects, and this year we have launched large-scale pension reform. We should work gradually this year, taking time to prepare and make decisions, so that we will be able to start major changes in healthcare next year.

We have taken a major step toward improving medical standards through the Healthcare National Project. We have applied new principles to resolve one of the main problems, and we have seen that the proposed mechanism is quite effective. However, people have been asking us, or me at least, and I'm sure they have also asked you when you meet with people in the regions, whether will we continue with this project.

I have discussed this issue with President Dmitry Medvedev today, and of course, we will continue this project. I can also tell you definitely that we will not just carry on with this project, but will redouble our efforts to devise an even better programme for improving the healthcare system.

In my opinion, the implementation of this programme is an extremely important, crucial goal for the government, for the heads of regional administrations, local governments, parliament and all of its members. People's health, life expectancy and quality of life depend on its implementation. You know that this would be a challenging task for any government and any parliament. Most importantly, all citizens of Russia without exception are interested in the implementation of this programme and the positive results it would bring.

It should be said here that we also need to address the problem of quality and accessibility of medicines. The new law stipulates a clear and understandable mechanism for the supply of modern medicines to the Russian market, and can be used to effectively regulate the pricing of essential drugs and to prevent the sale of falsified and counterfeit medicines.

In addition, the government is drafting a comprehensive programme for the development of the pharmaceutical industry. Our goal is to create an environment for investment in this sector, so that more quality medicines will be manufactured and sold at affordable prices.

***

And now I will speak about housing programmes. We invested approximately 500 billion roubles in these programmes in 2009, and will invest as much this year.

The government has objectively become the largest buyer in the housing market. And it was largely thanks to this that we have prevented a dramatic decline in housing construction. Last year, 59.8 million square metres of housing was commissioned. The figure for 2008 was slightly larger, 64 million.

I can tell you now, in the run-up to the upcoming celebrations of the 65th anniversary of Victory in the Great Patriotic War, that we have provided housing to all veterans who were registered for this benefit before March 1, 2005. In all, 28,000 veterans have moved into new flats; the last housing documents are now being filled out. By the way, members of parliament are closely connected with the populace, and so if you have information about failures in this system, please inform us about them without fail. We will act promptly to remedy any problems.

As you know, we have made a policy decision to expand the programme so as to provide housing to all veterans in need of better living conditions, irrespective of whether they filed their requests before or after March 2005.

I've already signed a government resolution to allocate an additional 34.5 billion roubles for these purposes. Let me repeat that all war veterans will be provided with housing. Do you understand what I'm getting at? Construction companies can only fulfil a finite amount of work over a finite period of time. We will have resolved the issue for one category of veterans by May 9, and now we'll do the same for a different category. We will make sure that we see this through to the end.

And there is another priority we have not given up on, either. In 2009, service members under the Defence Ministry received 45,600 new flats. This has never been done before. Another 51,900 flats will be provided this year. All in all, almost 100,000 flats were granted in two years. As a result, we will fully meet the permanent housing needs of service members in the Armed Forces, as we have promised.

And there is still another category of people whom we should not forget about. I'm referring to those who retired from military service in the 1990s or the early 2000s without receiving housing. Let me remind you that at that time it was impossible to resolve the issue at the federal level, and these men and women were put on municipal waiting lists where, regrettably, things are moving slowly. Or rather not moving at all.

People are not to blame for the fact that at one time the government did not have the resources to meet its commitments to them. This is why we are obliged to return to this subject.

We initially expected to be able to provide all these people with housing in 2012 or 2013, but now I think we can do so earlier - in 2010 or 2011. We will ask you to allocate an additional 34 billion roubles for these purposes.

Incidentally, free privatisation of housing has been extended until 2013. Now both the veterans and servicemen will be able to register their title to the flats without rushing.

Other categories of citizens also have the right to receive housing from the government. Needless to say, we haven't forgotten about them, and we will continue resolving these issues. For instance, 6.9 billion roubles have been set aside in 2010 for the relocation of people from the Far North.

In 2008-2009, the Housing and Utilities Reform Fund invested 166 billion roubles in major renovations of high-rise buildings and efforts to relocate families out of hazardous buildings. This was a major effort, and it continues. Housing has been repaired for 11,300,000 people. A total of 165,000 families have moved into new flats or are registering documents in order to do so.

This year, 85 billion roubles will be spent through Housing and Utilities Reform Fund programmes. This will make it possible to carry out major renovations on 26,000 high-rise buildings with a total area of 60 million square metres and relocate tens of thousands more people out of hazardous housing.

At the end of the past year I also instructed the relevant departments to find additional funds for developing the mortgage market in order to make it accessible to as many people as possible. As you know, Vnesheconombank will allocate 250 billion roubles to support the mortgage market.

I propose that in order to improve the conditions for mortgage lending, interest rates on loans from the Federal Welfare Fund through Vnesheconombank should be reduced from 8.5% to 6.5% - but only if we formulate truly effective measures aimed at making mortgage loans more accessible. We will soon submit proposals on this issue for your consideration, and I'd like to ask the deputies to introduce relevant amendments to the federal law.

In general, this large-scale programme should be a serious boon for the construction industry and help us resolve a very important social issue - providing people with housing.

* * *

Esteemed deputies of the State Duma,

I'd like to cite one informative statistic. The crisis has not reduced business activity. On the contrary, the number of small- and medium-sized companies grew by 143,000, or 2.8% last year.

In other words, people have not lost their can-do spirit. As before, they are ready to assume responsibility for their destinies. We must support them as much as we can.

At the same time, it is still premature to speak about the full entrepreneurial freedom in this country.

How can we talk about freedom if until recently we had 500 types of business activities that required a license, and 78% of goods sold in the country had to undergo mandatory certification?

Now we have reduced the number of licensed activities to 74 and the percentage of goods requiring certification to about 50%, but even this is not enough. In the European Union, for example, a mere 15% of commodities have to be certified.

And how can the investment climate be considered favourable if it takes up to two years to receive approval for major construction projects, whereas in other countries it takes between three to six months?

Of course, much has been done. The number of inspections of small- and medium-sized companies has been cut by more than half. Mandatory certification has been decreased as well. Declarative procedures for opening new businesses have been introduced for 20 types of business activities. We plan to extend this system to cover the entire economy in the near future.

However, if you dig deeper into the problem, it becomes obvious that it is not limited to the number of inspections or even the remaining administrative barriers. Two awful tragedies of the past year - the accident at the Sayano-Shushenskaya Hydroelectric Power Plant and the fire in Perm, revealed very serious problems in the system of government regulation and inspection. Everything had been checked and checked. The paperwork was all good, everything was in order, and there was still a tragedy. This shows that inspection agencies are overloaded with paperwork and the institution of government oversight has been devalued. Quite often these agencies find fault with companies for minor issues or for nothing at all, while nobody seems the real problems.

Under the circumstances, businesspeople very often prefer to strike informal deals with inspectors rather than provide for the quality and safety of their products and services.

Now we are studying the situation in every supervisory agency and repealing legislation with excessive and illogical restrictions. City-planning requirements will be simplified in the construction industry and the government will no longer have a monopoly on expert evaluation of construction projects.

Or take another example. At present more than a million quarantine certificates are issued in this country each year. Agricultural companies have to pay four billion roubles for this, and businesspeople pay another 10 billion a year for official sanitary documents. This sometimes borders on mocking and harassment when a farmer must collect several kilograms of paperwork to sell one kilogram of meat.

The procedures for imposing and lifting the quarantine of plants and registering other permits will be changed. Licensing procedures will also change considerably. In many cases, licenses should be either cancelled or made indefinite. Why do universities have to receive licenses every six years, and collect 250 documents with 3,000 pages to do this?

Regulation must be used to identify real threats to people's lives and health. Those responsible for such threats should bear real responsibility for their actions, rather than be able to hide behind all kinds of fake documents.

I'd like to make a special point. Many people worry that if we cancel this or that procedure, the situation may become worse. But I believe that it simply cannot get any worse because we have already hit bottom. You remember how the sports facilities collapsed in Moscow. Everything was proper, all the certificates were in place, and all the paperwork had been collected. But the roof collapsed.

We will also speed up the introduction of electronic government services as much as possible. First, this will be convenient and, second, it will sharply reduce the opportunities for abuse and red tape.

Last but not the least it is difficult to talk about entrepreneurial freedom when many sectors of the economy are actually closed to private enterprise, because they are artificially monopolised by the public sector.

We did not embark upon the road of nationalisation during the crisis. Strange as it may seem, but some businesspeople would like to shift the burden of responsibility to the government. Today the expansion of the public sector is totally inappropriate.

I think that any proposal for the acquisition of assets - both by the federal government and by state-owned companies - should require special arrangements at the government level, and in any case require a complicated procedure in order to prevent excessive nationalisation.

There is yet another pressing issue - finalising rules for discrimination-free access of customers to the services of natural monopolies such as sea and river ports, postal service and the railway infrastructure.

At the same time, it follows that purchasing procedures should be clearly regulated in the monopolies and companies that we call companies with state participation. We need to demand that they interact more closely with businesses and not set up more and more affiliated structures, thereby squeezing out the space for private initiative.

In 2009, we reformed anti-monopoly legislation. A programme to develop competition was adopted for the first time. The regions should also develop their own plans for de-monopolisation of local markets. Let me remind the governors that regional programmes to develop competition must be ready by June 1.

***

Colleagues,

We associate the post-crisis development of the economy primarily with technological upgrading. Therefore, a new stage of tax reform is directed specifically towards supporting innovation. We are currently analysing previously established preferences for high-tech business. Frankly, we have not felt any tangible effect so far.

First of all, there is no established law enforcement practice. There are problems with administration. Many companies have simply not learned to use the benefits provided. And the tax service must help businesses understand the changes to the tax laws instead of pursuing them for every minor infraction.

In addition, already during the spring session, the government will submit to the State Duma additional proposals on improving tax legislation.

The most acute problem here is increased insurance contributions to the Pension Fund and other social funds. When we made this decision, and we made it in the interest of the oldest generation, we realised that the fiscal burden on business will grow. Therefore, we promised to take the edge off the increase in the fiscal burden in the field of information technology, for innovative companies, for residents of technical innovation zones, for small businesses created at universities and research centres, as well as for the media.

For them, the insurance contribution will be applied gradually and smoothly during the transition period. At the same time, the lost revenue of extrabudgetary funds must be compensated from the federal budget. This will make it possible to prevent infringing on people's rights to employment pensions and other insurance compensation.

Let me add that the list of companies eligible for this benefit may even be expanded if a clear and corruption-free mechanism for administering it is proposed.

Other measures are planned in the tax field. In particular, it is necessary to verify the accounting treatment of spending on research and development and methods for calculating amortisation.

We also propose to abolish profit tax from the sale of securities on the condition that the term of their ownership is more than five years and they are not circulating on the stock market. This measure will enable small innovative companies to secure investment on more favourable terms by issuing their own securities.

Small innovation companies at universities and research centres will receive the opportunity to make a smooth transition to a simplified tax system. Incidentally, more than 200 such companies have already been incorporated.

The next measure: companies' operations in public healthcare and education will be exempt from profit tax. This applies both to non-commercial and commercial companies.

For them, the tax holiday will be extended at least until 2020. We are introducing this measure for the first time for commercial organisations. We proceed from the fact that they are working in vitally important fields - public healthcare and science.

In 2009, we passed a law on energy saving. In order to encourage companies to integrate new energy-efficient equipment, it is proposed to make it tax-free for three years.

In addition, the government will expedite the drafting of new technical regulations in construction and other sectors. The requirements of these regulations should induce businesses to work on their efficiency daily. Foreign economic cooperation and integration processes will play a key role in this. After all, more openness on the national market is a guarantee against stagnation.

That is why we carefully and selectively approached the introduction of protectionist measures as part of an anti-crisis programme. Moreover, when I personally contacted colleagues from other countries, they were disappointed because we are introducing such restrictions. But I have to say that the average weighted value of import duties did not increase. From 11.5% in 2008, it fell to 10.6% in 2009. We reduced the general import duty.

Nevertheless, the main problem now is not import duty rates, but the quality of customs administration. The international practice of customs clearance involves the release of goods within hours, not days. In Russia, this process takes a minimum of one week, and if the transaction is complex, it can take more than a month.

Such inadequately long waiting time often puts an end to export or import of high-tech products. If there is no elementary order in the customs office, no amount of efforts to push Russia's innovative products and other modern products on the international market will produce the desired result.

I want to particularly emphasise that improving customs procedure will be done in the format of the Customs Union, and this is already becoming more complex.

On January 1, 2010, the common customs territory of Russia, Belarus and Kazakhstan became a reality. And now we're proceeding with a qualitatively new integration stage. A common economic space should be established in less than two years, with unrestricted movement of capital, goods and services. Moreover, our union is open to all who ask.

I want to clarify that this is a whole other quality of union. It is a deeper integration than the Customs Union. We will need to harmonise dozens of very important basic treaties between the three governments. These treaties form the foundation for the development of the economies of all three countries.

***

Esteemed State Duma deputies,

Starting in July 2009, the Russian economy has shown increasingly steady signs of recovery.

According to official government forecasts, in 2010, GDP is slated to increase 3.1%. Nevertheless, there is a high probability that the growth rate will be higher.

The preliminary results of the first quarter of 2010 inspire optimism. Growth in industrial production was 5.8% and real income increased 7.4%.

All of this enables us to say that the recession is over in our economy. More importantly, we have very good starting conditions for further progress. This does not mean that the crisis is definitively over, but the recession has indeed departed.

Key sectors of the real economy and the financial system have weathered the global challenges and are coming out of it in good shape.

Russia has a respectable trade surplus of $112 billion and the lowest inflation in 18 years - 8.8%. This is a serious achievement. Moreover, inflation continues to slow down. We need to bolster this trend and reach the level of 5% to 6% at most.

We have the lowest volume of foreign debt among developed countries - 8% of GDP. And conversely, we have the third largest gold and foreign currency reserves. In the last 12 months, we added $64 billion to these reserves. Today, they stand at $448.6 billion.

In 2009, we not only resolved immediate issues, but we did not lose any time in making systemic changes. All of this enables us, without losing momentum, to make a transition from crisis management and a crisis agenda to stable innovative development. This is the main scope of the government's work for the next two years.

We hold that the goals we have set for ourselves are realistic. We know how to achieve them and we believe in success.

***

Soon we will celebrate the 65^th anniversary of Victory in the Great Patriotic War. This is our common, great holiday.

I would like to sincerely congratulate the veterans and workers on the home front from that time on the anniversary of victory. I wish the victors and heroes health, peace, happiness and good fortune.

* * *

Following his address, Vladimir Putin answered questions from members of the State Duma:

Oleg Smolin: Mr Prime Minister, the State Duma intends to pass the government bill entitled Autonomous Budget-Funded Agencies tomorrow, April 21. The majority of independent experts believe that it will have an impact similar to that of the voucher-based privatisation and the notorious welfare monetisation. In particular, the law will bring about: 1) drastic cuts for the remaining free education, healthcare and fitness facilities while replacing them with paid services, which will be a blow to the quality of care and pocketbooks of citizens; 2) increased corruption, as bureaucrats alone will decide whom to favour with government contracts; and 3) increased social tensions and widespread unemployment of educated professionals, which will in turn lead to the deterioration of the quality of our workforce, where Russia ranks 71^st in the world as it is, compared to 34^th even in 1992.

Mr Putin, have you personally heard any reports about the bill, or are financial and economic bosses simply pushing it through without your involvement? Has the government discussed the social and political implications of the bill, including the risks of its actually passing?

Thank you.

Vladimir Putin: Of course we have discussed the bill. You cite experts who think the percentage of paid services will increase, corruption will skyrocket, and so on. However, there are experts who think that, on the contrary, the share of paid services will not increase, while the potential for corruption will decrease because companies and agencies will have more rights and will manage their resources independently, within sight of their entire workforce. Expenditures will no longer be determined by high-level officials-in the district government, let's say. This is my first point.

Second, the bill is not about legalising present-day illegitimate and semi-legitimated payments. Instead, it will make it clear to everyone, to healthcare consumers and healthcare providers alike, which services can be paid services and which services absolutely must be free.

What matters most is that the bill is designed to improve consumer services and provide quality public education and healthcare. Of course, we should consider the needs of the personnel at these institutions, their earnings and labour conditions. But then, these institutions are not an aim in and of themselves. They exist to serve the citizens of the Russian Federation, who have the right to quality education and healthcare. By the way, the institutions that have somehow already switched over to the new system are actually increasing wages. Almost all of them, in fact.

In the places I have visited... and I'm not making things up on the spot here, sitting at this rostrum. I am always travelling, as you know. I visit places and meet with people, so I have heard it all straight from the horse's mouth. I know that wages are rising, and that these companies have not yet met with disaster.

However, I understand the concerns of those apprehensive experts you mentioned. The practice deserves a closer look. So I don't think the shift should be made in one fell swoop. A transitional period is necessary to see how the new system is working nationwide.

Sergei V. Ivanov: Mr Prime Minister, in your address you directed the attention of regional governors to the fact that they must formulate a programme for developing competitiveness before June 1. This is wonderful, and I will certainly inform the governor of the region I represent about it.

As you know, Russian mobile telephony is dominated by three monopolies. I will not name them to avoid giving them free advertising. As a result, communication is among the most expensive services in Russia, as everyone surely knows. Here are some figures for comparison's sake: in Ukraine, for instance, a call from Sevastopol to Kharkov costs 15 kopecks. In Russia, a call from Kursk to Moscow costs six to ten roubles. See the difference?

So this is my question: does the government approve putting limitions on these monopolies? And another question: might the programme spread to parliament? We are an absolute monopoly, after all.

Vladimir Putin: Which programme do you mean? One giving out free phones for all of you Duma members, or what? Or are you talking about monopolies?

I am not the one who sets the rules for the State Duma. I think it should make its own regulations.

As for what your question boils down to, international consolidation is underway. Look at the economic sector, and you will see worldwide consolidation. Not that it should lead to the market being monopolised, of course.

You have made a comparison with Ukraine. Well, that's an old trick-we make comparisons with Germany when we need it, and with Ukraine when we have other goals.

One minute of conversation over a mobile phone costs much less in Russia than in the European countries. Roaming is the real problem. It is much more expensive here than in Europe. This matter truly deserves attention. In fact, the Federal Anti-Monopoly Service is addressing the issue, has brought a lawsuit against all those companies and is investigating their operations. They will be punished if they are found in violation of anti-monopoly laws.

Andrei Chirkin: Mr Prime Minister, the tariffs for natural monopolies have contributed significantly to the increase in consumer prices this year. The increase in rent and utilities fees hits the population the hardest. The accelerated increase in natural monopoly tariffs significantly limits government efforts to curb inflation, cut production costs and make Russian manufacturers more competitive.

What additional measures to limit increases in tariffs will the government take next, including reducing inefficient costs of natural monopolies?

When, in the medium term, can we expect the approval of such tariffs?

Thank you.

Vladimir Putin: This problem truly exists, and it is a problem that affects people significantly.

The first part of your question concerns rent and utilities fees. I am glad to inform you that we saw a nationwide increase of only 11.5% in the first quarter. That's a fact. The statistics are correct.

We have delegated the right to set tariff ceilings to the regional governments. Tariff increases have exceeded 25% in 1,146 municipal entities, if I am not mistaken. In some of them, the increases are even higher than the regional ceiling. You have also heard of outrageous increases of 70%, 46%, and suchlike.

But let me say again that the national average is 11.5%, as compared to 17.7% during the first quarter of last year. Once again, that was the increase in more than a thousand entities.

Why is that? Why this discrepancy? The reason is that the tariffs were not raised in due time, despite our repeated requests. And so we have decided that municipal entities and, respectively, regions, will not be entitled to assistance and support from the Housing and Public Utilities Fund unless they put an end to cross-subsidising and solve many other problems this year. So here they are with 46%, 70% or 50% increases. All this means that they have not demonopolised the market and not shifted from allocating funds to their pet companies to subsidising low-income citizens quickly enough.

What are we going to do about them now? I will ask you to prolong the time period for the easy transition, instead of making them abolish, say, cross-subsidising, in just one year.

As I have said at a meeting of United Russia, what we need is to compile a list of names (there are slightly more than a thousand entries, not too many, in fact: it's no more than a few pages) to see what's going on. That's what we will do. But then, we will need to amend the law so as to allow all these inefficient municipal authorities to make an easy transition. This is my first point.

Second, there are transport fares and electricity and gas fees. If I have got it right, regulated electricity tariffs have increased by 8%, railway cargo tariffs by 9.5% and passenger fares by 10%. Gas tariffs have increased the greatest, by 15%, due to the need to balance energy bills.

As I have said before, to this same audience, if I am not mistaken, we cannot go on with this practice when the whole country depends on natural gas as its only means of sustenance. It is wrong even from the point of view of security. We should make export and domestic prices equally profitable, though domestic prices will always be somewhat lower because they do not include export duties. That is why we have deliberately authorised a slight increase in natural gas prices for this year.

As for the medium term, this is the correct decision. We will try to enact it because it will guarantee investment in critical sectors of the national economy.

What we need is an arrangement whereby tariffs over the next few years take available investments into account. At the same time, the public should be kept informed about it. Later on, these measures should allow us to reduce costs, expand networks and increase, say, production.

We have begun this practice in several sectors, and we will expand it to others.

Valery Chereshnev (A Just Russia): Mr Prime Minister, I think many will agree that the current global economic downturn showed to the whole world how important science is in modern society. The role of science is really critical and it performs a variety of functions.

I'd like to touch on one issue related to science, the future of science centres, or science towns, the major contributors to the innovative development of the Russian economy.

The government suspended the practice of conferring the status of science town on municipalities more than 12 months ago, whereas some 50 towns with high science and technology potential could apply for this status.

A total of 500 million roubles have been allocated to the existing 14 science towns, which is 36 million roubles per each town.

We have recently visited four science towns, Obninsk, Zelenograd, Dubna and Biysk. We were asked the same question in each town, and I'd like to ask it today: What's the future of the science towns? Why is the funding so low? What are the government's plans with regard to science towns?

Thank you.

Vladimir Putin: Several clusters of towns were formed in Soviet times to serve the defence and nuclear industries. This system proved very effective, and these towns were the pride of this country, and still are a source of pride.

The science town programme was developed in the late 1990s. I think you understand how this issue was addressed at that time, in particular which benefits were offered to towns. They currently have almost no benefits at all. These 500 million roubles that you mentioned, a bit more than 500 million roubles in fact, are the reimbursement of the taxes that municipalities pay to the budget.

Of course, this amount is ridiculously low, but we have a comprehensive programme to support high-tech industries, which I mentioned today. As far as Obninsk is concerned, there is a special high-tech economic zone there, and we'll continue to build it up. We allocate funds there; it's not within the framework of the science town programme, but the municipality receives these funds nonetheless.

We've already discussed today the growth of production in aircraft industry, and I gave you some numbers. This industry still requires special attention, there are a lot of shortfalls there, but the growth is evident, and we provide funds there. A lot of funds have been allocated recently.

I've also mentioned the shipbuilding industry today, which is facing even more problems. But this industry has registered 31% growth, and we continue investing in it.

This is what I was talking about when I said that we need to overhaul the way we spend money from the budget. We have the money, it goes where it needs to go, but it is listed under a different budget item, not because it is a science town. Let's give this issue some thought together. We may need to redistribute budget funds to provide more money for science towns, if it is really needed.

Vladimir Kolomeitsev (KPRF): Mr Prime Minister, the government speaks of stability, but according to the data of the Federal Treasury, budget spending for 2009 falls short of 300 billion roubles, a number of targeted programmes were underfinanced, regions received 13 billion roubles less than planned, which resulted in the closing of schools, hospitals and libraries. The Audit Chamber reported that 6,000 changes were introduced to the 2009 budget, and a third of budget funds was only distributed in the fourth quarter.

Regarding the budget for 2010, the government and the Ministry of Finance have been given vast authority to use funds without having to alter the budget law. However, new amendments to the budget have been introduced to the State Duma, and it's only the beginning.

The serious shortfalls and mistakes of the Ministry of Finance with regard to budget planning and spending are evident.

How do you explain such an unstable budget policy? Will the draft of the budget for 2011-2013 be worked out in more detail and submitted to the State Duma in due time for its thorough consideration by parliament?

Thank you.

Vladimir Putin: Mr Kolomeitsev, regarding the changes the government introduces quite often to the budget, such practices are pretty common in other countries. However, procedures are a bit different. For example, if I'm not mistaken, the German parliament does not debate the budget at all. Once introduced, it can be either approved or voted down. Unlike the German government, we always consult with you. Is this bad?

That's the first point. Second, given that the recession is not over yet, the future of the Russian and global economy is very uncertain.

In 2008, we started drafting a budget for 2009. I remember very well how we discussed it, and what oil price we expected when projecting budget revenues. We settled upon $41 per barrel, but I'd like to remind you that some of the people on your right mentioned $38, $35 and even $30.

Anything could have happened. Nobody knew how the global economy would develop. Our decision to proceed from over $41 per barrel was a positive signal for the economy.

The average price eventually totalled $61 in 2009. This year, our projection was $58 per barrel, but the price reached $75 in the first quarter already. The changes to the budget that we submit to the parliament for discussion usually propose an increase and redistribution of budget spending.

The changes we proposed lately call for the allocation of additional funds to the United Aircraft Building Corporation, road construction, and Rosatom. The opportunity arose and we came to you to discuss spending more money on an essential economic sector. That's the second point.

Finally, as far as the government's right to use funds under the anti-recessionary programme, we needed this authority to make urgent decisions to redistribute money and address acute problems in the social sphere, the labour market and the economy. Such authority was really needed to address urgent issues and adopt anti-crisis measures. Our economic difficulties have not yet passed, but I think the government could waive this right next year.

Vladimir Seleznyov (LDPR): Mr Putin, Government Resolution No.582 of July 16, 2009, On the Main Principles for Determining Lease Payments for Federally or Municipally Owned Plots has greatly increased lease payments for small and medium-sized companies and higher educational institutions, which are very important for the country's economic modernization and to make institutions like universities innovation-based. We believe this anti-crisis measure hinders our main goals for national development.

Is the government planning to amend this resolution in order to lower lease payments, and what categories of companies and institutions will this apply to?

Thank you.

Vladimir Putin: Mr Seleznyov, what can I say? I can say that you are right. In general, what is happening is outrageous, although I don't think the government resolution you mentioned is to blame. It did not create the conditions that you mentioned. But this sphere is unregulated. Both regions and federal agencies request cadastral evaluations. Both taxes and rent depend on these cadastral evaluations, and nobody knows how they are evaluated. There is a lot of corruption in this sphere. Indeed, lease payments for some companies and institutions have increased several times over. This is bad for everyone.

Thank you for raising this issue.

This is what I think should be done in the near future. The law should be amended and the authority to make cadastral evaluations should be given exclusively to the regions of the Russian Federation, excluding relevant federal agencies from this process. Some other things must be cleaned up, too.

We'll submit these proposals in the near future. The issue has rightly been raised and we must resolve it together. Let me repeat that we are going to do this very soon. We'll submit a draft amendment to the law.

Yulia Peskovskaya (United Russia): Mr Putin, raising the cost effectiveness of budget spending and improving the tax climate is essential for the government to operate effectively, and you have fully reflected this in your report.

In late 2009, the Finance Ministry drafted a programme to increase the cost effectiveness of budget spending until 2012. The ministry posted it on its site in February, but according to available information, the document has not yet been coordinated within the government. If there are further delays, the programme's implementation may be postponed, which makes it unlikely that we will be able to consider it in the federal budget for 2011-2013.

When can we expect the government to approve this programme? What are the main measures to increase the budget's cost effectiveness that will be reflected in the budget? Thank you.

Vladimir Putin: Ms Peskovskaya, I see that there are deputies who are actively supporting the position of the Finance Ministry. Mr Kudrin probably asked you to raise this question.

This programme is ready. I have talked about it in my report. I mentioned the need to switch over to a new way of creating budgets. The budget must be based on major government programmes for developing certain industries. It should be clear from these programmes what funds are spent on specific goals and through what channels.

I've already quoted an example. The Ministry of Healthcare does not know about significant medical spending in other departments. The same is true of the Ministry of Education.

We want to focus our attention and resources on major goals set forth in large-scale government programmes and for the budget to be based on these goals.

The programme is ready and I hope the government will discuss it in the nearest future.

Anatoly Greshnevikov (A Just Russia): Mr Putin, since the Ministry of Environmental Protection was closed, the number of environmental problems has been rising, especially with respect to household and industrial waste management. Spring has revealed heaps of rubbish everywhere - impassable yards and dumping sites. Retail stores use more and more non-recyclable plastic with every year. According to different estimates, about 80 billion tons of waste have accumulated at the country's waste disposal and dumping sites. Waste management is the responsibility of municipal authorities, but they are unable to cope with the problem.

Could you please say what economic and technological measures the government is planning to take to make our cities eco-friendly?

And environmental experts have one more request for you, Mr Putin - to restore government protection of forests. Regrettably, the regional forest administration has not done its job. We are receiving too many alarming signals about the plundering of forest resources and losses running into the billions and billions of roubles. The country and domestic forestry is waiting for the law on round timber. You are familiar with this problem. We would like the government to return to forestry as soon as possible.

Thank you.

Vladimir Putin: I will start with your last question. You think that forests were managed better before, right? We do not want to increase the number of agencies, but we can look into this. I promise you that we will review this issue in the government, weigh all the pros and cons, make our decision and inform you of it. This is the first point.

Now about the rubbish. You have quoted a figure of 80 billion tons. I think it is too high. According to the information I have, this figure is 5 billion, which is also high, beyond the acceptable limit. Eighty billion is far too high, although 5 billion is also a huge amount.

At the same time, I'd like to draw your attention to the fact - and you surely know this - that waste management, recycling and processing is a highly profitable business in many countries. It is a large and profitable business. In some European countries it is monopolized by certain groups - I'm sure you know this, too - but generally it functions well.

Our goal is to create the conditions for this business to develop. Needless to say, this is primarily a job for municipalities and regions. Regions could establish inter-municipal sites, so-called waste disposal grounds, help with investment, and so on. But if the problem is turning into a national issue, if we are mired in this waste... I don't think we should adopt special programmes now and fund them from the federal budget. But we could think of ways to create the conditions necessary for this business to develop. Let's see what can be done. Make your proposals.

By the way, I have seen recently what is happening in the north. Perhaps the television networks will show this some time.

I went to Franz Joseph Land, and the situation there is simply horrible! After the Soviet Union's collapse, our army left many places, and economic activity declined. There are up to 60,000 tons of leftover fuel and lubricants on Franz Joseph Land alone. Many barrels are already leaking. There are chlorides there. Leftover barrels stuck in ice are along the entire Northern Sea Route, maybe up to a million tons.

Now it is warming up there and everything immediately goes down the drain. We have many environmental problems in this country. This is true.

Konstantin Shirshov (KPRF): Mr Putin, the construction of new highways has actually decreased by 67% over the last ten years. Spending on roads was hurt the most by the crisis last year. Russia has essentially turned its back on the experience of countries that have invested in roads. We chose a slightly different path and fortified state corporations and banks.

As for the infrastructure, it has literally been left out in the cold.

Under the pretext of the downturn, the Ministry of Finance has, in fact, strangled the road industry in the regions. As for the countryside, there are no roads to speak of.

In his address to the Federal Assembly, President Dmitry Medvedev said the matter was out of order. Mr Prime Minister, when and how will the government bring it into order, particularly by reducing construction costs taking due account of road use, and what amount of funding for regional and rural roads is envisaged for next year? Last but not least, when will your order be fulfilled for the 100% funding of road maintenance as relevant regulations have it?

Vladimir Putin: You are right. We have really shifted a proportion of the funds previously allocated from road construction to other sectors. This is understandable: redirecting this money is easy, because it is less painful, less conspicuous, even though in the final analysis it certainly is bad for the economy. I agree with you on that point.

However, we had to choose where to take the funds from. The defence sector would not have achieved its 13% increase if the money weren't channelled there from other sectors. The space industry has seen a 15-17% increase. Without it, we would not have launched all those rockets. Russia currently accounts for 41% of all launches worldwide. We could not have afforded them without the extra budget money. We have raised pensions and taken on some additional expenditure, as well. If we had not cut road construction allocations so drastically, we would have given less to other sectors.

On the whole, I am also uneasy about it. There is really a reduction in this field. This is only a token reduction as compared to preceding years' achievements. However, the reduction of planned volumes is sizeable as we had intended a large increase, which we cannot make now.

As far as I remember (I can not recall the exact figure now), we will allocate about 280 billion roubles to road construction and offer 35 or 34 billion roubles to the regions as targeted aid. We will certainly not stop at that. We will return to the matter next year and later on. I don't know as yet how much can be allocated in 2011. We will discuss it together as we work on the draft of next year's budget.

Vladimir Semyonov (Liberal Democratic Party): Mr Prime Minister, what truly effective measures is the government planning to support farmers? It is no secret that subsidising loans is no cure-all, however good it might be. The issue of grain transportation remains unresolved, interventions on the grain market have demonstrated their inefficiency, and harvest insurance does not stand up to scrutiny though other countries have considerable experience of effective work in this field.

Thank you.

Vladimir Putin: I have already spoken about support for agriculture. Our total allocations from a variety sources amounted to 300 billion roubles last year. This is a significant amount.

I won't get into the other kinds of support for farmers, for example through customs and other tariff regulation. We have cut import quotas year on year. We imported from 1.2 million to 1.3 million tonnes of poultry meat a year from the United States alone mere three or four years ago. This year, however, we have set the import limit at 600,000 tonnes, and we will probably reduce even this because the meat does not comply with our regulations on chlorine concentration. This concerns one group of measures.

There is another group of measures: financial support. We will spend almost 80 billion roubles, just over 79 billion, this year subsidising the interest on loans alone.

I call your attention to our decision last year to increase subsidies to 80%, and even to 100% for certain sectors, for instance, stock breeding. Isn't this support? It is significant and you cannot fail to see it. Farmers see this, and it is a real help.

Agricultural output is increasing despite everything. There was a 1.2% growth even during the downturn, and stock-breeding is developing apace.

On farmers' requests, we have decided to extend loan repayment terms from five to eight years. This was a controversial decision because it cuts budget revenues but we have launched the programme, and it is being implemented.

As for the efficiency or non-efficiency of grain market interventions, I am not so sure. We will stop them if you say they really have no effect, though I am not at all sure that farmers will be overjoyed with that. Want to know why? Because we have been making such interventions two years running. I am sorry to tell you, members of the State Duma, that we spend a billion roubles a month only on storing the grain we purchase from farmers. We cannot sell it because its world price has slid below the purchase price we paid.

Response: Distribute it for free, then!

Vladimir Putin: Free distribution won't work. People never believe anything good is given out for free. The grain will eventually be dumped, and we will have to dispose of it.

In any case, the question of what to do with the grain is relevant. We can and should think about it, especially because we lack sufficient storage facilities. The grain is just piled up and we are helping to export it.

You have also mentioned grain transportation. There are preferential tariffs, whatever you might say. I believe fares are halved for distances over 1,100 kilometres. We have extended the benefits this year to grain-growers who take their grain to Far Eastern seaports for exports. So the programme is working, on the whole, and is a success.

If you find more measures are necessary, let us discuss them. Be that as it may, this is a comprehensive programme, one that benefits agricultural producers even though it might be not always benefit the budget.

Mikhail Tarasenko (United Russia): Mr Putin, in 2010, as in 2009, one of the government's approaches to fighting the crisis is supporting single-industry cities. Priority cities were identified at the federal level and funds allocated; however, there is still no real money even for existing projects.

At the present time, the ongoing social problems of these cities are mostly being addressed through public work funded mainly by the federal budget. But after all, investment in, and modernising infrastructure and production - these entail not temporary, but perpetual jobs that are paid for in a different way with additional impetus for industry and the development of small business.

Mr Putin, perhaps it is essential that the government resolve these issues more proactively, first of all, and secondly, more publicly, engaging labour unions, maybe the media, in order for, among other things, the unexplained lack of initiative of some principal employers in single-industry cities to be apparent to the entire country?

Thank you.

Vladimir Putin: The issue, of course, is an important and very pressing one. In Russia, we have around 300 population centres where "local economic mainstays" operate. And in general, this is a problem that affects almost all of Russia's small cities and towns, which is where 40% of the Russian population lives. This is so the scale is comprehensible.

In 2010, we are allocating 25 billion roubles and are working on a programme for 27 single-industry cities. I believe that four have already been selected. I do not remember exactly, but several have been selected: these are Togliatti, I think, the town of Sokol in the Vologda Region and another town. Intensive work is being done in the four towns, including Naberezhnye Chelny. The programmes in these towns are more or less ready.

I think that you'll agree with me that just throwing money at the problem without a clear understanding of how it will be spent is futile. We need development programmes for these single-industry towns to diversify their economies.

Incidentally, we talked about supporting the labour market. In 2009, we allocated around 40 billion roubles for this, or a bit more than that. We spent less, but this money mainly went there, mainly to single-industry towns. Apart from the 25 billion roubles that are directly allocated to diversify the economy, we, in essence, will fund these single-industry towns through other line items as well. Together with the leaders of the regions, we must make sure that this money is spent competently and with maximum efficiency.

Of course, I agree with you that this must be done publicly; it goes without saying. It seems to me that what is being done now in terms of this process is sufficient. If you think that this is not so, then I will direct the attention of appropriate government agencies and, of course, we will continue working with the labour unions. Mr Mikhail Shmakov will correct me if I'm wrong, we are working very intensively with labour unions. This is a generally complex process for the government. Labour unions are unaccommodating structures, but we nevertheless have been able to come to an understanding of what is the right approach and what steps must be taken in the near future. But with regard to openness and transparency, that's correct, and I'll keep it in mind.

Thank you.

Yelena Drapeko (A Just Russia): Mr Putin, you identified the goal of modernisation in your report - improving the quality of life. Of course, there's no way for us to disagree with that and we will support it. But because man does not live by bread alone, let me say a few words about culture.

In the Soviet era, there were standards for providing the community with the services of culture and sport facilities. So in a community of 200 people, there was a club and a library and the district centre would have a full-fledged cinema, and in a community of 5,000, construction of a swimming pool was obligatory. Today, we have no standards for providing the community with cultural, educational and sports facilities.

You mentioned government standards for providing public health, and we are, of course, envious of public health. We would like to know how the government is making provisions for the creation of equal, in other words standard, conditions for community access to culture in all of the reaches of our great Fatherland.

Vladimir Putin: Mrs Drapeko, there were, of course, standards, but you and I both know that they were not observed. Mrs Drapeko, how large of a community population could count on a swimming pool?

Yelena Drapeko: 5,000.

Vladimir Putin: 5,000. And in Kalmykia, the population is 300,000 and yet they only recently opened their first swimming pool - there were none before.

As a matter of fact, there were many good things in the Soviet era, in this sense. I myself, perhaps, would not have been able to practice sports if I did not frequent a "ratty" but functional gym. It was at a factory's Trud association, and everything there was rudimentary, but it was there, that's true. Generally, the network was more widespread, that's obvious.

Standards were far from reality. We have standards today, too. I don't know when they were approved, but they exist. I will show you, Mrs Drapeko. Believe me. They exist and were approved sometime in the late 1990s - how large of a population community is supposed to get what. We are generally quite good at making standards. We have enough of that. There are no facilities, but there are standards.

You said that you envy public health. There is, for the moment, nothing to envy there, but the situation with culture is more complicated. I understand.

In recent years, we have spent a considerable amount of money on renovating existing facilities and on the construction of new ones. These are mainly major well-known facilities.

We have increased spending on this line item very seriously. These are the Mariinsky Theatre, the Bolshoi Theatre, the Musical Theatre in Astrakhan and another two or three facilities. Of course, we must expand on this.

But you put me in a difficult position. There is no money, but this is a field that needs investment, and I understand this perfectly. But in the course of our work on the budget, together with you, we will try to balance all of these issues through a joint effort.

That is all, I suppose, and there is nothing more to say. Yes, we took not much from culture, I agree, not much. But we didn't have a programme to support the labour market before - it only started in 2009.

You are correct in raising the issue, we will try to minimise these negative consequences and more than that - we need to increase it, I agree, we need to increase it.

* * *

Vladimir Putin's closing remarks:

Colleagues, thank you for taking part in this discussion, for your comments and proposals.

I will begin with the last speaker, who spoke about the centre's status, about Moscow's status.

We will need to introduce significant amendments into legislation on the powers and responsibilities of the federal centre and the constituent entities of Russia. Of course, Moscow is a special case, but this is a very serious matter. Before taking a decision, we should consider it thoroughly.

As for culture and sports, I'd like to remind you that last year we commissioned 200 sizeable sports facilities. This is the first point. Our "1,000 Sports and Recreation Centres" programme is being implemented. Of course, we would like to build more, but you need to give your regional authorities a nudge because this is primarily their responsibility. We cannot allocate funds from the federal budget for the construction of small sports facilities, although we sometimes do so. We have built dozens of heated football fields and fields with artificial turf.

I have already said that we are investing in major cultural facilities. In future, we could consider a special programme for the regions. Although we are already allocating funds; as I have said, we have spent over one trillion roubles on support for the regions.

It is up to the deputies, above all those from the United Russia party in the regions, to ensure that these funds are spent effectively. They should carefully consider and determine their priorities.

A few words about the progressive tax scale now. We did not say that we introduced it as a permanent measure; the fuss over changes to what many of us regard as fundamental is not a positive signal. The system is effective in many countries where it is administered well. When we introduced a 13% tax, tax collection increased, which was what we wanted. Do you see my point? We reduced the tax but tax collection to the budget increased because people stopped hiding their incomes; unfortunately, we have not learned to properly administer these funds. This is the problem. If we learn to administer them properly and tax collection is streamlined, we will gradually search for ways to change the system. But I think this would be premature now.

You have sharply criticised Moscow, although we are not discussing Moscow today. It has been said that the government is corrupt, that they have stolen everything they could. And then Vladimir Zhirinovsky said that Yuri Luzhkov again wants to give foreigners all the best bits. Why does he think this? Can you imagine Luzhkov allowing foreigners to pick all the plums?

I think that Mr Zhirinovsky is wrong on this.

As for economic decline, Russia's economy has fallen more than the other G8 and BRIC countries, but it is also recuperating faster. This is due to the structure of our economy rather than whether it is being well or badly managed.

The steel, oil, gas and chemical industries have declined quite dramatically, but for reasons that do not depend on us. They took a plunge because global markets tanked.

As soon as the crisis ended, rehabilitation in Russia started gathering speed. This is due to the structure of our economy; I want everyone here to understand this. Therefore, our main goal, which I wholeheartedly support, is to change the structure of our economy in order to increase its innovation component.

I have looked, and you said that we are not considering the proposal of one of our oldest parties, the Communist Party, regarding socialist modernisation. I have looked at their proposal; they suggest freezing prices. The next step in this situation will be to seal the border, because as soon as we freeze prices, goods will move out. We will have to seal the border, because you cannot keep goods in a country where they are sold cheaply when they can be moved to a country where they can be sold at a higher price. This is clear; if we do this, we will have to close the country. Are you ready for this? I'm not sure that even rank-and-file Communist Party members want that.

Also, they propose introducing obligatory bonds for some groups of people. Well, we could do this, introducing bonds for the wealthy today, but tomorrow the policy would be extended to other groups of people. And we would again force them on people, just like in the 1950s.

I'd like to remind you that many achievements were made in the Soviet period. I'm not one of those who denounce everything Soviet. Don't forget that I have restored the anthem of the Soviet Union as the anthem of the Russian Federation.

However, it is a fact that the system was ineffective. How could it be described as effective if it led to the disintegration of the country, if they failed to hold it together despite their efforts? The economy collapsed because the [Soviet] methods of economic management were ineffective.

Speaking about the banking system. You all know what we went through in 1998: we did not support the bank system in time, I have already mentioned this, and you know it well, you are all adults. What happened to all these banks that were thought to be unshakable, like ONEXIM and the others? They vanished into thin air in an instant, and people lost all the money they had in these banks. But we could not allow this to happen.

Of course, supporting the banking system was a priority, as they often say in such cases: it is the circulatory system for the entire economy. Despite our support we saw prohibitive interest rates. We made them finance the real economy.

I would like to draw your attention to the fact that this situation occurred in all countries, even those with mature economies. If you watched the debates of your colleagues, for example in the British Parliament, [you would see that] it was much the same as what took place in the Russian parliament, word-for-word. There are no Communists there, but they said the same words: they gave money to bankers, "fat cats", and the latter received a lot of money, but did not finance the real economy. There they even started coming up with schemes to finance the real economy that even the Communist Party of the Soviet Union never dreamt of. This is a common misfortune, a common problem that we resolved together.

Now, I would like to stress this, rates have decreased. They still make it hard for the economy: 13%-14% is too high. But this is the rate for good borrowers, and there are 17% rates as well. But we should not resolve this problem directly. We should start resolving it gradually, improving the general macroeconomic situation in the first place, which we having been doing with success. I already said that this year's inflation is the lowest within the last 18 years.

As for what was done over the last 10 years... we did not start work in 1980; we started it 10 years ago with an economy that was in ruins, as was social sector and the state itself. We should not distort anything, but should base our actions on facts.

As for the proposal to increase taxes on vodka, I believe the Communist Party of Russia supports raising the price for vodka. The government opposes it, so we will not go ahead with it.

Thank you very much. That was a joke.

Thanks for a really fruitful discussion, thanks for the attention you paid to my report and the zeal with which we discussed it today.

Thank you very much.

* * *

Prime Minister Vladimir Putin made a statement to the press after the meeting

Vladimir Putin: Good afternoon. I think all of you have been in this hall and have heard the report. There is nothing more I can add. The only other thing I could probably say is that we have created a good tradition: we first did it last year, and we carried on the tradition this year. The report on government performance provides a direct connection between the government and parliament.

It is useful for the government, and I hope that this discussion has been also useful for State Duma deputies. I mean that we are learning to understand each other better and to make more precise plans for our joint work. I view this as a positive achievement.

Thank you.

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